Kahneman gets warm reception after winning Nobel

PRINCETON, N.J. -- In an auditorium filled with colleagues, students,
reporters and staff who roared with applause as he was introduced, Daniel
Kahneman talked on Wednesday about the pioneering work he has done integrating
psychological research into economics, for which he was awarded the
2002 Nobel Prize in economic sciences.

Kahneman has been the Eugene Higgins Professor of Psychology and professor
of public affairs in the Woodrow Wilson School of Public and International
Affairs at Princeton University since 1993.

A video of the news conference is available
at WebMedia.
It is useful for listening to the audio portion. A higher-quality
version will be available soon.

In its announcement, the Royal Swedish Academy of Sciences cited Kahneman
"for having integrated insights from psychological research into economic
science, especially concerning human judgment and decision-making under
uncertainty." Kahneman's work, it said, has laid the foundation for
a new field of research by discovering how human judgment may take shortcuts
that systematically depart from basic principles of probability.

Asked how he learned that he had won the prize, Kahneman said, "At
9:15 (this morning) someone with a very distinct Swedish accent called,
and he read me a citation -- actually, I was a bit excited, I suppose
I didn't really hear it. And then he said . . . I will give you the
chair of the committee, who happens to be someone I know, and so we
verified that this was for real and not a particularly nasty crank call."

Kahneman was awarded the economics prize along with Vernon Smith, a
professor of economics and law at George Mason University. Kahneman
and Smith will share the $1 million prize money.

"We are honored to have Professor Kahneman on our faculty, and delighted
that his work has gained this important international recognition,"
said Princeton President Shirley M. Tilghman.

Asked what the prize meant to him, Kahneman said, "The work for which
I'm honored is work I did collaboratively with a close friend and a
very famous psychologist, Amos Tversky, who died in 1996. Certainly
we would have gotten this together, and that's one of the things that
this means to me today. There is that shadow over the joy I feel."

"Together we developed an approach to the study of judgment and decision-making
that gained some influence in psychology and economics," Kahneman said
earlier in the day. "Many others have contributed as well. The Nobel
award in economic sciences is given in recognition of ideas that have
been influential in some field of economics. In this case, the award
reflects the remarkable success of an approach known as behavioral economics,
which is pushing the frontiers of research by introducing psychologically
realistic models of economic agents into economic theory."

Kahneman has "challenged the microfoundations of economics," said Deborah
Prentice, chair of Princeton's psychology department. "He has documented
the shortcuts people take and the biases they have in making decisions.
When people don't have a systematic way of making a decision, they do
what they can, and that was news to psychologists and economists."

Before Kahneman's work was published, economists had assumed humans
were motivated by self-interest and made rational decisions. In addition,
economics had been considered a non-experimental science that relied
on real-world observations.

"If people are not always capable of making rational decisions, then
a lot of what economists had inferred on the basis of those assumptions
really needed to be re-examined," Prentice said. "Nowadays there's a
growing body of research called experimental economics that is testing
economic assumptions in the laboratory, largely because of Danny's work."

"He's challenged the basic model of how individuals behave economically,"
said Gene Grossman, chair of Princeton's economics department. "The
standard model is that everybody is rational, self-interested, calculating;
he's suggested that more psychological motives determine people's behavior
and that these motives are important for economic phenomena."

The paradigm of the rational actor has not been thrown out, said Grossman,
"but I think there is now a broader range of thinking about certain
issues, especially savings behavior and participation in the stock market.
There are certain phenomena in macroeconomics, especially concerning
equity markets, that are very hard to understand without relaxing the
rational actor model and relying on some psychological influences."

Kahneman's landmark paper on decision-making under circumstances where
there is uncertainty, written with Tversky, was published in Econometrica
in 1979. Kahneman said he would not have won the Nobel Prize "if exactly
the same paper had been published in a psychological journal. Because
it was published in an economics journal, it had a fair amount of influence
on the profession and it sort of legitimized a certain approach to thinking
about decision-making which eventually, through the work of other economists,
became influential in economics itself."

Born in 1934 in Tel Aviv, Israel, Kahneman received his bachelor's
degree in psychology and mathematics from Hebrew University and his
Ph.D. from the University of California-Berkeley in 1961. He taught
at Hebrew University from 1961 to 1978 and at the University of British
Columbia from 1978 to 1986. From 1986 to 1994 he was a professor at
the University of California-Berkeley.

He has won the Hilgard Award for Lifetime Contribution to General Psychology
and the Warren Medal of the Society of Experimental Psychologists. The
American Psychological Association recognized him with its Distinguished
Scientific Contribution Award in 1982.

Kahneman has dual citizenship in the United States and Israel. He is
married to Anne Treisman, the James McDonnell Distinguished University
Professor of Psychology at Princeton.

Since 1993, the year he arrived at Princeton, Kahneman has co-taught
"Introduction to Psychology," better known as "Psych 101." "He likes
introducing students to the field," Prentice said. "And he has been
a good mentor to colleagues, turning his attention in recent years to
collaborations, especially interdisciplinary ones."

"We at the Woodrow Wilson School could not be more pleased and proud,
not only of Danny but of the superb work he has done," said Anne-Marie
Slaughter, dean of the school. "He has married psychology and economics
in ways that enrich both academic theory and policy practice."

Kahneman will receive the prize in ceremonies Dec. 10 in Stockholm.

The last member of Princeton's faculty and research staff to win the
Nobel Prize in economics was senior research mathematician John Nash,
who won in 1994. Kahneman's selection brings to nine the number of current
faculty and research staff who have won a Nobel Prize.